Monday, January 31, 2011

Yesterday, Juan Cole posted on "Class Conflict in Egypt," http://www.juancole.com/2011/01/egypts-class-conflict.html. As usual, very insightful on the poltical economic foundations of this uprising. He argues that the original base of support for the Nasserist regime that took over in a coup in 1952 was rural land reform, with the rural middle class that got land still the base of the regime. However, over time with urbanization and slow growth and the rise of corruption since Mubarak took over, that base has eroded. Nasser also gained credibility for throwing out the British and standing up to other outsiders (with the US and Soviets ironically siding with him in the 1956 Suez Crisis against the UK, France, and Israel).

Real wages doubled between 1960 and 1970, when Nasser died, but stagnated after that until 2000, with nearly zero real per capita income growth and a worsening income distribution. Neo-liberal policies, including relaxation of food price controls in the 1990s, did not produce much, although growth did increase after 2000, running at a 5-6% rate. But it has not been enough to provide jobs for the many urban youth, particularly the better educated ones.

Also, since 1980 the regime has been seen as supported by outsiders, particularly the US, Israel, Britain, and France, in contrast to the Nasser period. As economic problems surged with the food price spikes in 2008 and the subsequent Great Recession in the world economy, this made for a weak foundation of support for the regime. We should expect any successor to take a more independent line, especially the moderate El-Baradei who was so badly treated by the US previously.

I must note, however, that while inequality has increased, it is not all that bad compared to many other countries, with Egypt's current Gini coefficient of 34.0 putting it in 90th place in terms of inequality in the world.

Finally, I note that the chances for Mohamed El-Baradei succeeding Mubarak (eventually anyway) have increased with him receiving the support of the Ikhwan, the Muslim Brotherhood. However, there are other more radical Islamist groups in Egypt calling for an Islamist state with Shari'a imposed as law, although they appear to be a minority on that side, even though they are more moderate than the expelled Egyptian Islamic Jihad, whose leaders include the #2 and #3 figures in al-Qaeda.

Saturday, January 29, 2011

I was last in Egypt more than a quarter of a century ago, in the early days of the Mubarak regime, before the US had seriously paid down the bill for the martyred Sadat's Camp David signing, which Mubarak upheld. That payment, probably the most serious thing that billions of US aid over three decades did for actual Egyptian citizens, was replacing the sewer system of Cairo, whose exploding flooding had triggered massive "sewage riots," although not as large as the food price riots of 1977 when Sadat attempted to remove subsidies and price controls on food under pressure from the IMF, by far the largest riots until those now occurring there.

This has been a long time coming and how it will end is very far from clear. Roughly there seem to be generally three possible outcomes: 1) Mubarak maintains control following the Iranian success in suppressing street uprisings, an outcome that reportedly the Israelis are predicting and most certainly hope will come true; 2) Mubarak falls to be replaced by Mohamed El-Baradei, former director of the IAEA, whose accurate reporting of the state of nuclear weapons in Iraq led G.W. Bush to try to remove him from his position and who has returned to be surrounded in a mosque with supporters by security forces giving him Islamic cred, even though he is the main hope of the social democratic secularists; 3) Mubarak falls to be replaced by the main opposition in the parliament, who are front parties for the Ikhwan, aka "Muslim Brotherhood," with this possibly leading to more radical factions of that group coming to power, ending in a Sunni-Egyptian version of Iran. As of now, there is no way to know which of these will triumph, and there are other more complicated possible outcomes.

Regarding the economics of this, Egypt is a peculiar combination of decaying state socialism and horrendously corrupt emerging capitalism. Egypt is an ancient country that is very cynical. They have seen it all, but they have been under an increasingly repressive rule with increasing inequality and growth unable to provide jobs for a rising and technicially sophisticated generation, this despite such ameliorative policies as the longstanding price controls on food.

The situation in Egypt parallels in many ways that in such countries as Tunisia, Algeria, Yemen, Jordan, and Lebanon, all of which have been experiencing uprisings led by young Sunni Arabs, although the details vary from country to country, along with the seriousness of the uprisings. It is in Tunisia and Egypt where these uprisings seem the most serious, with real possibilities of some kind of secular social democratic outcome quite possible, which would be a dramatic breakthrough of enormous significance. Unfortunately, the US has been very slow and far behing getting aboard these movements and supporting their more progressive elements. But in the end, the outcomes in all of these countries will have little to do with the US and everything to do with the people in those countries.

I note that Juan Cole at http://www.juancole.com as usual provides very useful reporting, commentary, and links on what is going on there.

Thursday, January 27, 2011

So, in his State of the Union message, President Obama threw the Congressional GOP some bones, support for the free trade pact with Korea and future ones with Colombia and Panama, an offer to lower the corporate tax rate combined with some sort of simplification to make it revenue neutral, an offer to consider limits on medical malpractice awards, and the offer of a continued freeze on discretionary spending. These probably helped make him look "reasonable" to many listeners, although I suspect that the GOPsters will gobble them up without necessarily giving him much in return. Of course, to the extent that such bones help keep his popularity ratings up, this may given him bargaining power.

On most other items he was astoundingly vague, if sometimes uplifting and all that. He gave some vague support to his deficit commission, "as a starting point" for negotiation and discussion. The real biggie is that he seems to have backed off from specifics on what to do about social security. There were many rumors around Washington and various blogs that he was going to come out for something along the lines of the deficit commission recommendations, particularly an increase in future retirement ages. However, it looks like the polls may have gotten to him. Despite his platform (and the best efforts of Bruce Webb and I and others) he has seemed awfully open to some sort of benefits-cutting deal, and his agreement to cut payroll taxes in December has also looked unpleasantly like a foreplay of such.

However, he stayed vague. Even 67% of tea partiers reportedly support raising fica taxes rather than the retirement age or other benefit cuts in order to "put social security on a sound footing," as Obama put it, although many of us have argued that there is no need to do this, certainly not in the near future. This is a situation where for once popular opinion is arguably closer to the reality than supposedly wise experts and pundits in Washington.

In any case, Obama is making others come to him with these proposals, and let them bear the political heat for doing so. This may mean that nobody will do so, hopefully.

Sunday, January 23, 2011

I cannot copy the memo, only read it on the web. Its willingness to write so honestly about our neoliberal capitalism, it is interesting and worthy of comment. Maybe someone can figure out how to copy it.

Other than the ability to manipulate and control its people and to export destruction to the rest of the world, the US empire seems to be fading in the midst of an emerging mulipolar world. The US is a strong exporter of weapons, agricultural products, and intellectual property -- and little else.

Cutting back on education, health care and other services that government should provide is hardly a way to build a strong economy.

One of the symptoms of decline is the weakening of the attraction of US culture. In Asia, Korean culture seems to be in ascendance. The Wall Street Journal recently reported as a fluff piece about this phenomenon.

What is it that the US will be able to offer the rest of the world other than its culture of looting, shooting, and polluting.

"What's going on, TV analysts in the region suspect, is that Asia is starting to outgrow its addiction to Hollywood hand-me-downs. For years, Asian broadcasters have been relying on such U.S. imports as the "CSI" dramas and that old standby "Baywatch" to fill out their programming schedules. Now, egged on by the popularity of South Korean singers and actors in recent years, Asian broadcasters are more comfortable using their neighbors' TV dramas or music instead of American fare. Some analysts figure the success of the Asian programs is the latest sign of Asia's rising confidence."

Saturday, January 22, 2011

I remember that, a few years ago, it seemed to be a full-time job explaining to people why it didn’t matter very much whether the US bought its oil from the Middle East, Venezuela, or Angola. You had to lay out the basic idea of a commodity market and the market-level basis for supply, demand and prices. Do we have to do this now for bonds?

OK, the risk premia attached to different issuers differentiate bonds in a way that doesn’t apply to oil deposits, and it does matter when demand shifts from one borrower to another, but one cannot infer global demand for a country’s debt from bilateral data.

I see this morning that Floyd Norris finds it “extraordinary” that China could be reducing its holding of Treasuries in light of its continuing large current account surplus, and its policy of keeping its currency cheap. It is true, as Norris says, that transacting through third party brokers could gum up the statistics, but even so, there’s nothing supernatural about this situation.

The overall global payments balances suggest a different possibility. China, in view of the great downside risk of the euro and the importance of its exports to the Eurozone, as well as its interest in diversifying its reserve holdings, may be ramping up its purchases of European sovereign debt. This also makes it a player in the politics of the region, which are crucial to the future global financial landscape. (I am being purposefully vague here: you can fill in the blanks yourself regarding China’s specific motives in gobbling up likely-to-be-trimmed debt from the likes of Ireland and Spain.) But buyers need sellers. This means China’s demand for US debt has been displaced to those who would otherwise have bought (no doubt at a steeper discount) the European bonds China acquired.

Thus it happens that the extraordinary becomes ordinary. China’s surplus dollars find their way back to the US via a European stopover, and the Eurozone crisis is extended for a few more months.

It is bad enough that Glenn Beck continues to pollute the airwaves on Rupert Murdoch's Fox News, having called for people to be "shot in the head" with no repercussions whatsoever. However, now we learn that Keith Olbermann is being dumped unceremoniously from MSNBC subsequent to NBC being bought out (oh, excuse me, "merged with") Comcast. Funny how the minute I saw the reports that this merger was going to happen, the first thought that came to my mind was, "they will fire Olbermann," which I then dismissed as mere paranoia. Well...

Anyway, I recognize that he has his oddities, such as going on for some time after Obama became president to end his broadcasts with how many days it had been since "President Bush declared mission accomplished in Iraq." But he was and is far superior to Beck and many others who persist without any question of their being fired on Fox and elsewhere (although we did see Juan Williams get the boot on NPR, only to have him get a huge contract from Fox and more recently the person who booted him booted herself). Someone should remove the jackass who removed Olbermann, but the trend in US media of ever larger corporations controlled by ever more conservative owners pushing to slice off the left while encouraging the right seems nearly unstoppable.

Wednesday, January 19, 2011

Brian Beutler has some fun with the following absurd claim from the GOP:

Top Republicans are claiming credit for a variety of metrics showing that the economy is improving. Expect this meme to snowball, particularly as Democrats have done little, so far, to stop it. On Fox News today, House Rules Committee Chair David Dreier (R-CA) contended the GOP deserves all the credit for recent economic growth. "[W]e can get our economy growing. And we've gotten some positive numbers. I think it's in large part because we won our majority and we're pursuing pro-growth policies," he said. In December, the Department of Labor announced that unemployment had fallen from 9.7 percent to 9.4 percent. Its data suggests private sector job growth has been increasing since the fall. The GOP has controlled the House for just over two weeks, but has yet to enact any major economic legislation -- and economists agree that even enacted fiscal policy will not be immediately reflected in economic growth.

As far as real GDP, we have not seen the report for the last quarter of 2010 but since the last quarter of 2009 when annualized growth was 5.0%, real GDP growth for the next 3 quarters was anemic especially in terms of the size of the GDP gap. Over the last 3 months of 2010 – employment per the payroll survey has risen by only 384,000 or just 128,000 new jobs per month. During the same period, the employment-population ratio has declined from 58.5% to 58.3%.

Simply put – the labor market has been very weak and not getting better. Brian is correct that we have yet to see any major economic legislation from the new Congress. But if David Dreier wants us to give his political party the credit for this mess – so be it!

The Heritage Foundation has just released its latest index of economic freedom around the world and has Singapore in a solid and rising second place behind Hong Kong. Fifth in real per capita income behind Qatar, Liechtenstein, Luxembourg, and Bermuda (CIA World Factbook data), Singapore is much praised by many as a "well-manicured" place with low corruption and transparent laws, although with considerable political autocracy based on the long-running rule in the country by Lee Kuan Yew and his son, the current prime minister (the father is Minister Mentor).

Despite this general perception of super laissez-faire-dom, Wikipedia labels it as I did in the title of this post. It is a curious mixture of socialism and state planning with innovative free market approaches. 60% of the GDP is produced by companies with at least partial state ownership. Nevertheless, one can start a new business in only three days, compared to a global average of 34 days. It is the first country to have congestion pricing (1992), and is now very green with limits on car ownership, given by the Certificates of Entitlement (COEs), or rights to buy a car, which in turn are auctioned off and currently selling for about 70,000 Singaporean dollars (1.3 of them to US $ roughly), or substantially more than most new cars cost. Public transport, infrastructure, and education are excellent and efficiently provided. Most housing is built by the government, with private citizens becoming owners under very strict regulations, including very active intervention in property markets to control speculative bubbles.

I just returned from a conference in this curious place, which has much to please for visitors, including diverse, high quality, and inexpensive food, as well as lively ethnic neighborhoods. However, I became aware of elements of the dark side of Singapore, which it must be said are not as bad in some other autocratic countries. Thus, political dissidents tend to get sued by the ruling family for defamation rather than thrown in prison or tortured. However, caning is widespread for many crimes and rising, doubling between 1993 and 2007. While some of the canable offenses are regular crimes, they also include illegally immigrating and engaging in illegal money lending, with Singapore receiving its lowest freedom ranking for "financial freedom" from Heritage at 60 (out of 100, Singapore's overall score is 87.2).

Unsurprisingly the darker side shows up in labor markets and income inequality. There are no reliable statistics on poverty. While I did see one beggar, they are reportedly picked up off the street and arrested. The latest Gini coefficient is 48, the same as Mexico's. Of 164 countries listed by CIA, only 27 have worse ones, 12 of those in Latin America, 11 in Africa, Bosnia and Herzegovina in Europe, and Hong Kong, Sri Lanka, and PNG worse in Asia.

In labor markets there is the largely unreported matter of indentured laborers from other countries (the unemployment rate is very low). I saw some in the backs of trucks, and I was told to avoid certain parts of Little India on Sunday because they congregate there and are reputedly engage in theft on their one day off (although some indentured domestic servants get no time off). A good source on them and their situation from 2006 can be found at http://newamericamedia.org/news/view_article.html?article_id=8a93766ff16fec2a9dfdfc2516f87482. If that does not work, just google, "indentured labor Singapore" and it is (or was) the top hit. Ironically, or perhaps unsurprisingly, Heritage praises Singapore's labor laws, ignoring this indentured labor situation while praising their lack of any restrictions on laying off workers, and giving them a 98.0 on "labor freedom" (just behind their 98.2 for "business freedom,").

So, Singapore is not what it seems in many media accounts, in many ways a progressive and innovative society that is growing rapidly economically, while also experiencing substantial inequality and repression in various forms. It is unsurprising that many commentators have seen the former communist/socialist and now Confucian Lee Kuan Yew's system as a model for the post-Mao Dengist reform movement in China.

At the same time, lawmakers have been proposing making guns as accessible as possible, even in bars and schools. Given this ideology, one should expect that members of would welcome this, many armed visitors as possible. Perhaps, to help the federal budget deficit, visitors could rent guns when they attend sessions of Congress.

Tuesday, January 11, 2011

The gun nuts can go to hell. They have managed recently to get the US Supreme Court to change the longstanding interpretation of the Second Amendment from its emphasis on providing for a militia in a period when there was no DOD, to an absolute right to own guns. If you listen to them, this right is up there with the First Amendment ones about speech, religion, press, and assembly. Wrong. While there are many nations on this planet who embarrass themselves by having some or all of those in their constitutions or laws while violating them severely (which the US does on occasion as well), there is no nation on the planet other than the US very recently that accepts the idea that there is some fundamental right to own guns. We are now seeing the fruits of this misguided belief.

Wednesday, January 5, 2011

According to this source, Federal government purchases were almost 8.1% of GDP during 2009. While the Republican Party tells us that they want to reduce the Federal deficit even as they cut taxes by reducing government spending, they typically rule out cuts in defense spending even that it was almost 5.5% of GDP during 2009.

Tony Capaccio reports that Defense Secretary Robert Gates is trying to get at least some control of defense spending over the long-term:

Gates, who plans to brief congressional leaders tomorrow, has received guidance from the White House that about $554 billion for defense, not including war spending, will be part of the budget that the administration will submit to Congress for the fiscal year that begins Oct. 1. That figure is $12 billion less than what the Pentagon planned, yet still allows for real growth over the fiscal 2011 budget, an analyst said. If implemented, the five-year cut would represent about a 2.67 percent reduction to what is a $2.99 trillion defense plan, not including war spending

This reporting ends with some appropriate cynicism:

Congress may add some of that money back in. An increase to $554 billion would represent growth of about 4.5 percent in nominal terms, or about 2.5 percent after adjusting for inflation, Daggett said.

Bet the bank that Republicans such as John McCain will lead the charge to adding back what little this Administration has decided to carve out of the original $3 trillion defense plan. We are not going to see significant reductions in overall Federal spending even if the new Speaker does push through his plans to have large cuts in small programs.

Monday, January 3, 2011

It is possible that this relationship has been changing over time. If you plotted only the years 1990-2009 (not shown), the corresponding trend line would be

change in unemployment rate = 2/3 (2.7 - GDP growth)

The only difference is that unemployment remains constant at a somewhat lower rate of economic growth; above or below this point the impact of growth on unemployment is the same. What is the significance of Okun’s Law today? At the time this is being written, the unemployment rate in the US is too high at 9.8%. Suppose we would like it to fall to 5%. If the more recent relationship continues to hold, it is telling us we need 7.2% of extra growth (4.8%, the desired reduction in unemployment, divided by 2/3, which means multiplied by 3/2) above the 2.7 level. We could accomplish this in a single year if we could get to 9.9% growth, but this is almost certainly out of reach. To get to 5% in three years would mean averaging 5.1% over that period. (Divide 7.2 by three and add to 2.7.) This is highly unlikely as well unless the government undertakes a much more aggressive adjustment program than we have yet seen. In fact, current growth hovers close to the break-even level itself, suggesting that high unemployment is likely to remain a fact of life for a long time.

Hall declined to comment on his future plans. Rumors have been floating around that he is up for a job in the Obama administration or with soon-to-be Governor Andrew Cuomo, possibly as head of the Department of Environmental Conversation.